Why You Need Auto Insurance

                                                              Why You Need Auto Insurance

Why You Need Auto Insurance

Auto insurance is an important purchase for most drivers. There are three main reasons to buy auto insurance.

To comply with state laws

Most states have auto insurance requirements. If you drive without insurance, you could be fined, and your vehicle could be impounded.

To satisfy your lender

If you have a car loan, most lenders require you to have insurance to protect their interest in your car. If you let your insurance lapse, your lender will likely have your car insured. The premium may be much higher (and the coverage much less) than a policy you would buy on your own. The lender can require you to pay this higher premium until you get your own auto Insurance

To protect your assets

Auto insurance can provide bodily injury and property damage liability coverage for accidents that happen to others for which you are responsible. Liability insurance also will pay the cost of an attorney to protect you if you’re sued. The state-required minimum coverages are usually not enough to fully protect you and your assets. Auto insurance also may cover the cost of accident-related repairs to your insured car, as well as your accident-related medical bills and lost wages.

Coverages in an Auto Policy

An auto insurance policy usually has several types of protections or “coverages” — some required and some optional. Some coverages may automatically be part of your policy unless you opt out of them. You must decide what coverages best fit your needs, which may mean choosing more coverages than you need to meet requirements.

Bodily Injury Liability

This coverage applies to injuries that you cause to someone else. You and family members listed on the policy also are covered when driving someone else’s car with their permission.

Property Damage Liability

This coverage pays for damages you cause to someone else’s car or to objects and structures your car hits.

Uninsured and Underinsured Motorist Coverage

Uninsured motorist coverage reimburses you if an uninsured or a hit-and-run driver hits you. Underinsured motorist coverage pays when an at-fault driver doesn’t have enough insurance to fully pay for your loss.

Medical Payments or Personal Injury Protection (PIP )

This coverage pays for treating injuries to you and your passengers. Personal Injury Protection (PIP), which is available in “no-fault” states, can also cover lost wages and funeral costs.

How Insurers Determine Your Premium

Many factors affect the premium you pay, including which insurance company you choose. Different insurance companies use different methods to rate their risk of insuring you and charge different premiums for similar coverage. These items will likely affect your premium: • Your driving record, and the driving records of others covered by your insurance policy, during the last three to five years. • Your credit-based insurance score. Those with better scores often pay lower premiums. Some states restrict the ways insurers can use credit-based insurance scores and several states ban their use. If you’ve had a hardship which may have hurt your credit history, ask your insurer if it will consider a life event exception.

Your age, gender and marital status. People under 25, males, single people and families with young drivers in the household tend to have more accidents and therefore pay higher premiums. Accident rates (and premiums) also tend to increase for people over age 65. Insurance companies can base premiums on all insured drivers in your household, including those not related by blood, such as roommates.

• The type of vehicle you drive. Generally, you’ll pay more for insurance, particularly for comprehensive and collision coverages, if your vehicle is newer or more expensive. Sports cars and high-performance vehicles also cost more to insure because they’re involved in more accidents and thefts and cost more to repair. If you drive a large SUV or truck, which can cause more serious damage in an accident, you could pay more for liability coverage.

• Where you live. Urban areas usually have more accidents and auto thefts than rural areas.

• Vehicle use, including your annual mileage.

• Your prior insurance coverage. Most insurance companies will charge you more if you don’t have auto insurance when you apply for coverage. Some also charge you more if you currently have only the state-required minimum amounts of coverage.

• Previous claims. Most insurance companies report your auto claims to one or more private nationwide claim databases (such as the Comprehensive Loss Underwriting Exchange—CLUE). Insurance companies use these databases to see the claims you’ve submitted in the past. You have a right to a free copy of your CLUE report.

• The limits you choose for liability coverage.

• The deductibles you choose for comprehensive and collision coverages